By Michael Flaherty, Elzio Barreto and Denny Thomas
HONG KONG, April 5 The mystery lender behind a
Thai billionaire’s $9.4 billion purchase of a stake in China’s
No.2 insurer was UBS, which offered a last minute and complex
financing package known to only a few involved, people with
knowledge of the matter told Reuters.
The Swiss bank's financial backing for China's largest ever
foreign stock purchase explains how Thailand's richest person
and his conglomerate pulled together $7.4 billion in cash for
the deal's final payment, after its main lender backed out at
the 11th hour.
The rescue role the bank played in CP Group's acquisition of
HSBC's 15.6 percent stake in Ping An Insurance Group Co of China
(601318.SS) was not disclosed by the companies and has gone
unreported until now.
People with direct knowledge say that UBS UBSN.VX backed
the deal with two financing facilities. The major piece of that
package is a five year, roughly $5.5 billion loan, one of the
largest loans of its kind ever extended in Asia, according to
Thomson Reuters data.
For the help it provided, UBS is set to earn another
milestone. People familiar with the matter say the bank is
expected to reap, over time, about $100 million for its effort,
which would make it one of the largest fees ever earned by one
bank for a single transaction in Asia, Thomson Reuters data
Such an extraordinary arrangement with a prized client, Thai
billionaire Dhanin Chearavanont, is both a rare move for UBS and
signals a key shift in strategy for the bank.
The Dhanin deal shows that the investment bank is focusing
more on high margin transactions rather than standard deal flow.
The aim is to cater more to faithful, fee-paying clients and
constructing deals for them that may be higher in risk, but also
higher in reward.
That strategy, taken on by rivals as well, comes at a time
when investment banking revenues are under pressure, in part
from a drop in the high-fee business of equity capital markets
banking across Asia and other parts of the world.
A jumbo loan for UBS, backed by the borrower's assets, is
new turf for the bank, known more for its M&A skills and equity
capital markets prowess in the region.
UBS's secret role in the saga is just one of several plot
twists that emerged in HSBC's sale of its stake in Ping An, the
world's second-largest insurer by market value.
UBS declined to comment for this story. CP Group also
declined to comment.
On Dec. 5, HSBC Holdings Plc (HSBA.L) announced that
affiliates of Dhanin's conglomerate Charoen Pokphand Group (CP
Group) agreed to buy the Ping An stake for $9.4 billion, and to
pay nearly $2 billion up front. The remainder was to come early
in 2013, pending approval from China's insurance regulator. The
deadline for approval was set for Feb. 1.
According to the Dec. 5 statement, the second instalment was
backed by a branch of state lender China Development Bank Corp.
Three weeks later, Chinese magazine Caixin published a story
based on anonymous sources saying that the up-front payment came
from entities not directly affiliated with CP Group. Beijing was
under pressure to clean up corruption, and China Development
Bank did not want to take any chances. People familiar with the
situation say the bank backed out of its loan in early January.
HSBC announced on Feb. 1 that China's insurance regulator
had granted approval, with final payment coming in five days.
The HSBC release made no mention of China Development Bank.
The question quickly surfaced: Without China Development
Bank, how did Dhanin secure the $7.4 billion? The official line
was that CP Group managed to fund the last instalment itself.
But doubts about that explanation lingered.
Although Dhanin is Thailand's richest man with a net worth
of $14.3 billion according to Forbes, coming up with $7.4
billion on his own was out of the question, people familiar with
the matter said. He and UBS began discussions on financing in
early January, they said.
Dhanin is a private banking client of UBS and the bank has
worked with him and his various corporations for at least a
decade on stock offerings, restructurings and acquisitions. UBS
was already the sole M&A adviser to CP on the Ping An deal, a
role that would earn the bank around $25 million in advisory
fees, according to Thomson Reuters data.
Dhanin's last-minute snag quickly turned UBS into a lender
According to people familiar with the matter, UBS arranged a
short-term facility, crafted in order to show the seller and the
regulators that Dhanin had the cash on hand to pay the final
A long-term financing facility then replaced the first one,
once the deal was approved and the two parties knew it would go
through without issue.
That second facility is a five-year, roughly $5.5 billion
loan, with a few other financing products attached, including a
hedging mechanism, according to the people familiar with the
A financing package of that size, huge in any market, was so
large that Zurich-based UBS Chief Executive Sergio Ermotti
signed off on the deal personally, the people said.
Part of the roughly $5.5 billion loan was syndicated to UBS
private banking clients, the people said, so that UBS is not
exposed to the entire amount. Dhanin and CP Group came up with
the remaining cash needed for the final $7.4 billion payment.
For UBS, backing the loan is Dhanin's personal wealth and
the various corporate entities he controls, including several
publicly traded companies.
The hedging part of UBS's financing package, the people say,
was put in place to protect Dhanin's financial interests if Ping
An's shares fall below a certain level.
The details of the package were privately negotiated and
only a few senior bankers and executives are aware of the
precise, complex details.
"The client had an issue, and UBS provided a solution. And
UBS will be paid a fee for that solution," said one of the
people familiar with the deal.
(Additional reporting by Clare Baldwin, Stephen Aldred and
Khettiya Jittapong; Editing by Edmund Klamann)
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